Taxation (Venture Capital and MiscellaneousProvisions) Bill, Taxation (Annual Rates of Income Tax 2004-05) Bill

, on behalf of the Minister of Revenue: I move, That the Taxation (Venture Capital and Miscellaneous Provisions) Bill and the Taxation (Annual Rates of Income Tax 2004-05) Bill be now read a third time. The wide-ranging Taxation (Venture Capital and Miscellaneous Provisions) Bill reflects many of the main themes of the Government’s taxation policy work programme, with measures to promote growth and innovation, to simplify taxation where possible, especially for small businesses, to reduce tax-related compliance costs, and to protect the revenue base. The bill removes a taxation obstacle to unlisted New Zealand companies gaining access to private foreign equity, including venture capital. It introduces venture capital rules that are similar to Australia’s, which should help New Zealanders to compete effectively with that country for venture capital.

As a measure that is designed to help small businesses, the bill introduces a tax discount for self-employed people who make voluntary payments of income tax at any point during their first year of business. The point of the change is to help to relieve the financial strain that some individuals face in their first couple of years in business. The bill also introduces changes to the legislative framework that governs the resolution of disputes between taxpayers and the Inland Revenue Department, to improve and simplify the process for both parties.

The bill allows the costs associated with patent and resource management consent applications that are withdrawn or not granted to be tax-deductible. It makes the taxation treatment of replacement plantings of fruit trees more flexible, which will encourage the use of the most commercially desirable varieties of orchard plants. In order to prevent a potential revenue loss, the bill closes a loophole involving the sale and leaseback of intangibles, such as trademarks and newspaper mastheads.

Another revenue protection measure deals with a technical problem in the way that New Zealand dividend rules operate. It closes a loophole through which New Zealand residents can receive income from Australian unit trusts that is taxed neither in New Zealand nor in Australia. As well as dealing with technical taxation issues that arose from the severe floods in February and July this year, the bill also provides the Inland Revenue Department with more flexibility when responding to taxpayers who are severely affected by that type of event.

Finally, the Taxation (Annual Rates of Income Tax 2004-05) Bill confirms the income tax rates that will apply for the 2004-05 income year. On behalf of the Minister, I say I am pleased that the legislation has reached its third reading. I would like to thank all those who contributed to it: the individuals and organisations who made submissions, the taxation policy officials who have worked hard on it and supported its many parts through their passage, and the Finance and Expenditure Committee for its careful consideration of the legislation. I commend the two bills to the House.

There is much in this taxation legislation, but I am duty-bound to say there is not much that is any good. That is the honest-to-goodness truth about this legislation. The Government could not even get the simple bits right. Let us start with some of the really easy stuff. But just before I make my comments on why this is such hopeless legislation and why all New Zealanders should reject it, let us think about the Government’s own partners in confidence and supply: the Progressives. What was their response to this legislation? They did not even turn up to vote in the second reading, and the vote was tied at 59 all. The Minister of Finance had to go grovelling to the media to tell the people of New Zealand that if the Progressive party pulled that stunt again and forgot to show up this time, it would be all over for Parliament—not just for this year of 2004 but all over, red rover. “We will go to the polls!”. That is what the Minister said. He went grovelling to the media and said that the Government’s own partner, the partner that Labour was in a relationship with, had not even bothered to front up to vote for this legislation.

Now let us turn to the other partner that Labour has for matters of confidence and supply—to United Future—to see what that party thinks of the legislation. If a certain journalist, Vernon Small, was writing about this legislation, he would use a word I probably cannot use in the House. It is the same word he used to describe Dr Cullen’s surplus. I cannot use the word, but I will tell members that it sort of rhymes with “locks” and it has a “bol” in front of it. That is what he would think of it. This is what United Future, the party that supports the Government on matters of confidence and supply, thinks of this legislation: the United Future members think it sucks. They think it is so bad they have had to put forward their own Supplementary Order Paper 284 in the name of Gordon Copeland—and my mother would not necessarily like that, but she would not like this legislation one little bit.

United Future has had to put forward its own Supplementary Order Paper, and what has been the Government’s response to it? A veto. It does not want to give one dollar away. Yesterday in the Budget Policy Statement the Government went out and told the people of New Zealand that there was no room for tax cuts. It told people not to worry about tax cuts, because there was not a spare dollar to return to them in tax cuts. It does not matter that household debt is going through the roof, from 100 percent, on average, of household income in 1999 to 130 percent now. That is right—every New Zealander, on average, owes 130 percent of the average household income. But Government members do not care about that, because they are OK.

I want to turn for a moment to the issues around the venture capital legislation, because it has not had a lot of discussion in this debate. The Government could not even get that bit right. It somehow seems to think that it can just redraft the legislation by going out there and presenting rules that no other country follows, and that somehow, miraculously, offshore funds will come into New Zealand and be invested. Well, I have news for the rather non-commercial elements of the Labour Party: “It ain’t gonna happen that way!” It is easier to go to Australia or the United Kingdom, both of which understand limited partnerships, or to go to hundreds of other countries that understand limited partnerships, than to invest here. Somehow New Zealand does not understand that concept and still believes, miraculously, that people will come here. What did venture capital societies say about this legislation? Well, they said it was a step in the right direction—yeah, right. It is a baby step in the right direction, but, once again, when presented with an opportunity to get some real capital into small companies that could become the backbone of the New Zealand economy in going forward, and that could really create jobs and opportunities and provide enterprise for young New Zealanders, the answer is that the Government cannot get past its ideology. It is just dishing something up to make it look as though it knows what it is doing, but really it does not know anything, at all. That has been the response in the venture capital area.

Then we move to the Australian unit trust issue, which is another very interesting issue. There the financial markets were reasonably creative, and they found ways of getting New Zealand residents to invest in New Zealand Government stock through Australian unit trusts, and then to be paid dividends in the form of bonus stock issues. That meant effectively that those New Zealanders received those dividends tax-free, because there is no capital gains tax in New Zealand. We were supportive of closing that loophole down, but what did the Government do? It went into the cupboard, pulled out the sledgehammer, and managed to belt everything over the head in relation to Australian unit trusts—equities and everything else. When the Government was doing the job, and as it was about to do a Texas chainsaw massacre on unit trusts, one would think it would get that right. But the Government did not get even that bit right, because it forgot about England—yikes! It forgot about the product coming out of the United Kingdom, and so it just did a hit job on the things that come out of Australia. Well, that is hopeless—absolutely hopeless.

When we go through this bill we cannot find anything that is good about it. But I want to spend the bulk of my time, if I may, in talking about the annual rates of taxation, and about the fact that the annual rates are being confirmed in this bill with no change. At a time when New Zealanders are having inflation rob them of any gains they get in their income, when they are working harder than ever, and when they are looking to get the right incentives from the Government, they get none whatsoever. Michael Cullen does not seem to think that incentives make any difference at all when one is earning money. He thinks they make a huge amount of difference in other areas, but when one is making money they do not make any difference whatsoever. So he is quite happy for New Zealanders to face an effective marginal taxation rate of 91 percent.

Michael Cullen is quite happy for a young family in Auckland to be working hard, earning $38,000, and raising two kids on that. He is quite happy for the couple to go out and get an education—maybe to get a student loan—or maybe to work harder, to work two jobs, to work longer, or to work overtime. In doing so the couple will miss seeing the kids at Saturday morning sport, and will miss what the rest of the family is doing. But if the couple puts in the hard yards and earn $70,000, it will get to keep $2,000 from the $22,000 extra that it earns—and that is meant to be fair! Well, I do not know what is fair about that, and I would just love the Minister to get on his feet and tell the people of New Zealand, who are out there working day in and day out, how that is somehow fair. It is so far from being fair that it is not funny.

💬 Hon Matt Robson: Come on, John, be fair to the Government. It’s doing a good job.

It is not doing a good job, I am afraid I have to tell Mr Robson. I am delighted, but not as delighted as Michael Cullen will be, that that member is actually in the House. I guess that that means that he can vote, so we are not to go to the elections just yet, in January. I have no doubt that Helen Clark and Michael Cullen were ringing Mr Robson’s office frantically, to make sure that he managed to pop in to the House from whichever Ahmed Zaoui soirée he had been to this afternoon. Ahmed Zaoui has only just got out of jail, but I bet the member has been down at the welfare office to check out his eligibility for the emergency benefit for him.

I will tell members something. Ahmed Zaoui has been out of jail for only a couple of days, and even he emailed my office to tell me that this legislation was no good! That is what Ahmed Zaoui thought of it.

What will happen to the millions and millions of dollars that are to be raised under the annual taxation rates set out in this legislation—and $46 billion will come into the Government’s coffers this year? That is 53 percent more than the Government raised in 1999 when it came into office. If this Government keeps on going, by 2008, 10 years after it first came into office—if, goodness forsaken, it is in office for as long as that—it will be earning 80 percent more than it did in 1999, yet there is no room for an adjustment to the taxation rates. We picked up the Budget Policy Statement yesterday and saw that the Government, after it has paid for its entire operating surplus and its entire capital surplus, will have $1.5 billion worth of cash in the hand, but there is no room for an operating surplus. The quality of spending has already started to deteriorate miserably, and it will get worse and worse. Things are coming out of the weird and wacky file that every Minister on the Government side of the House has, and we will be funding all sorts of unbelievable projects—because when the Government spends money that is fine, but when individual taxpayers in New Zealand spend money it is not.

On Sunday afternoon as I sat in my home, I wrote a press release about why the Government should give up just 1 week of the additional revenue—just 1 week—as a Christmas present. If the Government gave that up, it could send every New Zealander, young and old, a cheque for $75. That would mean that the average household in New Zealand would get $300, and people could have a few presents under the Christmas tree, a turkey on the table, and some trimmings. But the Government will not do that, because the turkeys in this scenario are Michael Cullen, the Government and this legislation—and what a disgrace this legislation is!

New Zealand First opposes this legislation. The Government would have us believe that we have an economic boom going on in this country. We are now taxing individuals at up to 39c in the dollar on income of $60,000 a year and over, the company tax rate is 33c in the dollar, and we have no tax incentives or concessions for our exporters, our good old Kiwi battlers. Especially when the exchange rate of the New Zealand dollar is US70c, I say that that is disgraceful. There is no economic boom, as this Government would have us believe. That is what I honestly feel.

The Minister of Finance and other Ministers, including the Associate Minister of Revenue, who spoke earlier, jump up and down in this House and tell us how great everything is, when they know that is a load of hogwash. Our dollar is worth US70c, which is hurting our exporters. Young people and first home buyers cannot afford to buy houses. Our interest rates are among the highest in the OECD. They are nearly 7 percent here in New Zealand, but the official cash rate in the United States is around 2 percent. I say that is disgraceful. Some journalists just take Michael Cullen’s word about the situation, and they do not tell real New Zealanders the real facts of the matter—that is what I strongly feel today. We are continually sliding down the OECD rankings. Australia is way ahead of us. The average Australian earns about $120 a week more than the average Kiwi. I note that Matt Robson comes from Australia, and if he had stayed over there and had not been part of this Government, he could be earning, on average, an extra $120 a week. That, I say, has every relevance to this legislation, because if the average New Zealander earns $120 a week less than the average Australian, both the Government and individuals here in New Zealand are worse off.

The Associate Minister of Revenue said about half an hour ago that this legislation would simplify taxation. Well, I say this bill will complicate it. Earlier this year we saw the Income Tax Bill, which was 2,411 pages long, go through the House. The Government said that that bill would simplify taxation. I say that that legislation complicated taxation, and that is what the Government is doing today in this legislation—it is complicating tax, not simplifying it.

A little while ago Dr Cullen congratulated himself and the Government on the great things they have been doing, as he always does. He pulled out his list of great things that the Government has been doing, and indulged in some self-congratulation on the things he has been successfully—so-called—dishing out to the New Zealand public. I read an editorial about 2 weeks ago in the New Zealand Herald. It was about Dr Cullen’s long list and about the Government constantly telling the country what great things the Government is doing. This is what the editorial had to say: “Conveniently absent from his list were high export prices and the twin mountains of household and country debt …”. This country has a current account deficit crisis the like of which we have never seen before. It is badly in debt. We have a major, major problem, and it needs to be addressed by the Government in bills such as these—supported by the Progressive Coalition, and supported by the United Future party.

💬 Edwin Perry: Poodle power!

That is right—poodle power. That is what the United Future members say when they are trying to get enough courage to vote for the Government. They just say: “Poodle power!”, and they vote for the Government.

A few weeks ago, when we were voting on this very legislation—the Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions) Bill, as it was then—in the Committee stage, the vote was tied at 59 to 59. That night United Future could have taken this Government down. United Future could have stopped the Government from putting through the Civil Union Bill. This Government would not listen to New Zealand First when we said that issue should go to a referendum, so that the people of this nation could decide on it. That is what United Future did: it let this Government ram that bill through. It could have taken this Government down when the vote was drawn at 59 to 59.

💬 Rodney Hide: So could New Zealand First.

No, no. We do not have a carte blanche agreement with this Government; we do not have an agreement with it. I also remind that member that he has sometimes supported the Government on certain pieces of legislation.

💬 Rodney Hide: Say that outside the House!

I may just try to do that. Earlier, when I spoke in the title debate on this legislation, I said the bill should have been called the “Taxation (We Don’t Care What You Think, Miscellaneous Provisions) Bill, but unfortunately I was cut off by the bell. The reason I said that is that the Government does not care about what is going on for average New Zealand households when it relates to income, income tax, personal tax, company tax, small business compliance costs, social issues—or whatever else. The Government does not care about those things. That is why I say that this legislation should have been called the Taxation (We Don’t Care What You Think, Miscellaneous Provisions) Bill. That is what it is. Yet the United Future party, which supports the Government, could have taken the Government down on that night, when the vote result was 59 to 59.

In closing, I want to refer the House quickly to the part of this legislation that concerns Māori authorities. When that legislation was first introduced a couple of years ago I put forward, on behalf of New Zealand First, a Supplementary Order Paper to allow that rate to be afforded to all organisations, no matter what race was involved. Sadly, that was voted down. We did not have a problem with Māori authorities getting a tax advantage—not at all—but we wanted all New Zealanders to get that tax advantage. That is what New Zealand First stands for. New Zealand First stands for people, for representing all New Zealanders, and for putting New Zealand first and foremost.

This debate has broadened into a wider debate about taxation and spending. We now have the benefit of the Government’s Budget Policy Statement, and the December Economic and Fiscal Update that was published yesterday. This official Government document reinforces, many times over, the arguments that were made throughout the debate on this legislation about the levels of taxation and spending. I might say at this stage that there are a number of detailed changes in this legislation related to taxation policy, and in so far as any members of this Chamber understand them, there seems to be broad agreement on them. However, the part of the legislation that sets our tax rates and threshold has been substantively debated, particularly today, since the December Economic and Fiscal Update came out.

United Future proposed some amendments relating to shifting tax thresholds. It is our view that the Government should have proposed its own amendments. I will give one piece of information as to why. There is a table on page 42 of the December Economic and Fiscal Update that shows the change in tax revenue since the Budget, back in May. The change in tax revenue since the Budget, for the year ending 2005, is $1.5 billion, and for the year ending 2006 it is $1.7 billion. That is how much extra tax the Government now believes it will collect, compared with 6 months ago. That, in itself, is a good enough reason why this legislation should have, and could have, included changes in the tax thresholds. That is income the Government did not expect to get, as recently as 6 months ago. Now, sure as anything, it will get it. It is coming from households whose net incomes are not rising anything like as fast as Government tax revenue is. It is extra tax revenue coming to a Government that is having real trouble spending the money effectively that it already gets.

We are not talking about a few hundred million dollars that could disappear in the rounding, or that might blow away in some little economic wind that crops up in the next few months. We are talking about $1.5 billion and $1.7 billion. That is, of course, going to be spent.

One of the reasons this Government ought to have changed the taxation rates and thresholds, and it is the same reason that United Future ought to take itself seriously for a change—because then other people might—and vote to change these thresholds, is that a good proportion of that money will simply be wasted.

I want to give the House one small example of very large numbers that no one has paid any attention to, but that show where this Government’s spending track is going. In this year’s Budget the Government had a forecast of how much it would be spending in next year’s Budget. That is part of what is required by our legislation. In the 2004 Budget the Government forecast that in the next Budget it would spend $1.6 billion extra in 2005, and that money of course is being spent in subsequent years as well. The document that turned up yesterday has a new spending forecast for the 2005 Budget, being election year.

We all thought that $1.6 billion was a lolly scramble. Here was a Government desperate to try to win a third term, with a lot of money in the bank, going into an election year Budget with an enormous amount of cash to spend. Yesterday, the Government cranked that up by another half a billion dollars. So the forecast spend for the election year Budget has gone from $1.6 billion to $2.1 billion—$500 million, just like that.

And it gets worse. The previous forecast said $1.6 billion per year, and the new forecast starts at $2.1 billion and rises to $2.8 billion over the next 3 or 4 years. The Government will be spending an enormous amount more money, in the next Budget, than we thought just 6 months ago. So there is absolutely no doubt about the Government’s fiscal strategy, which is to get in all the tax it can possibly get away with, and then find as many ways as possible to spend it.

Why is it doing that? I had a look through the fiscal outlook document, and I have to say I am greatly concerned about the quality of Treasury’s production of this document. Page 46 has fiscal indicators and the use of the operating surplus. Treasury has produced an interesting graph; it just does not have any dates on it. So that is what I call a moving feast. It has these nice little waves of shortfalls and operating balance including revaluations and accounting changes, which are all calculated on the year ended 30 June. We have no idea just what year it is.

💬 Craig McNair: It looks smart.

It looks good, and no doubt Dr Cullen will produce it any year that he feels like, because it has no dates on it at all. I wonder who produced this graph. But it does ask the right question on this page. It asks: “Why does Government run an operating surplus? Why is it not ‘available’ for more spending or tax cuts?”. I say to Treasury that if it thinks the Government does not regard this extra tax revenue as available for spending, then it is wrong. I have just shown how the forecast for the next Budget has gone up half a billion dollars. So it is absolutely incorrect for Treasury to imply that it is not available for spending. Its own document shows that it is. And it is absolutely incorrect for Dr Cullen to say that he is some kind of fiscal conservative; everyone else wants to spend, spend, spend; he did not put out a press release telling the country that he is increasing Government spending in the next Budget, for 2005, by half a billion dollars. That is what I call spend, spend, spend.

Treasury asks why it is not available, and then comes up with the right answer: the answer to these questions is the Government’s fiscal strategy. So the truth is we are collecting a lot more tax than the Government needs, because the Government wants to. It is the Government’s fiscal strategy. It is not some natural product of the global economic system that it cannot help. It is because in this legislation today the Government chooses to collect that much tax, just as it chooses to waste large amounts of money in its spending.

The Government’s judgment on spending has to be questioned, because even if we think it should spend a lot, how is it that we end up with our schools selling raffle tickets to employ teachers, and schools and communities raising half a billion dollars per year over and above what the Government gives them to operate our schools—

💬 Brent Catchpole: And that doesn’t include volunteers, either.

—and that does not include voluntary time—at the same time, even just within education, as the Government is hosing away hundreds of millions of dollars on courses that no one wants and no one is finishing? In the end, fiscal policy is about judgment, it is not about some automatic machine that forces one to do everything and there are no choices. This Government has made choices, and that is to fatten its own waist at the expense of the working families of New Zealand, and then to try to fatten its own voting catch by spending that money in as many unwise and ill-judged ways that it can think of in the next 8 months before an election.

Just on 5 years ago this Parliament was plunged into urgency by the new Government. The Government said that it needed more money—so its first act in this Parliament was to bring in legislation, under urgency, to put up the top rate of tax to 39c. Why? Because it had done its sums and it decided that it needed an extra $400 million. Opposition parties explained that it would be counterproductive, that it would not work, that it would drive people overseas, that it would make people less entrepreneurial, and that it would cause less investment. But, not only that, we also pointed out that the Government did not need this $400 million and that it had been an election campaign, as my friend the Hon David Carter says, simply to punish the successful people of New Zealand.

The Labour Party was able to go around and promise all sorts of good things, and when questioned as to who would pay it, it said: “Don’t worry, the rich people are going to pay for it.” In actual fact, everyone has paid for that tax, because there has been that much less investment and that much less entrepreneurship. What did we discover? I remember this: there was a pledge card. Nothing was true about that pledge card. From the photograph down, everything was a fraud and a phoney. Helen Clark’s airbrushed, teeth-straightened picture was on the card, and she stated that the tax increase would affect only 5 percent of taxpayers. What do we now discover? Eleven percent of all taxpayers are paying that top rate. As the National Party pointed out, 22 percent of all workers are now paying that top rate of tax. So that promise has proved to be, like so much of the Labour Government, a lie. We have also discovered that the Government never needed that money. I ask Mr Copeland how much the surplus is now.

💬 Gordon Copeland: $7.5 billion.

It is $7.5 billion, yet the Government put up the top rate of tax to raise $400 million—less than half a billion dollars. So Mr Copeland, who has loyally supported the Labour Party, has come down here with a very modest proposal, simply to hold Labour to account for its election pledge. He is simply saying: “We’ve said we would keep our word and support the Labour Government in power. Why don’t you keep your word and hold it to 5 percent? Here is how you do it.” Not only has Mr Copeland set out how it could be done, he has drafted the Supplementary Order Paper. He has brought it down to Parliament. If one were supporting the Government, one would expect the Government to consider it and to take it on board if it was a good idea. And, if it did not think it was a good idea, it could come down to this great Parliament of ours and put it to the vote.

But Michael Cullen would not allow this to go to the vote, so Mr Copeland’s Supplementary Order Paper was vetoed and we, as elected members of Parliament, do not even get to vote on it. So Mr Copeland, who has been honest with his support of the Labour Party, is now supporting a dishonest Government with his honesty. I think that at some point he has to ask why he is honestly supporting a dishonest Government. I think that the honest thing for Mr Copeland to do would be to put his vote where his principles are, rather than putting his vote to where there are no principles, which is Helen Clark’s airbrushed picture.

💬 Gordon Copeland: The principle is to tax and spend.

Mr Copeland is saying that the Labour Government’s principle is to tax and spend. I have to say, on behalf of the ACT party, that I agree with him. I know that New Zealand First agrees with him. I know that Mr David Carter agrees with him on behalf of the National Party. Let us do a quick sum. [Interruption] I know that the United Future party does not agree with the Greens, and I know that it disagrees with the Labour Party; the only thing I am perplexed about is why it keeps voting with the Greens and with the Labour Party. That is the bit I just cannot get my head around.

💬 Rod Donald: We can’t figure it out, either.

The Greens cannot figure it out, and the truth of it is that neither can Mr Copeland. He cannot figure out why he is doing it, either. If he did, he would get up and explain it all to us. Let us just put aside where we are in each party and think about the poor voters, and, in particular, the poor taxpayer, and remind ourselves what Michael Cullen told this House. He told us that, yes, the gross income for the average household had gone up, but when one takes off the increase in direct tax and one then allows for inflation, we discover—and this is not allowing for the indirect taxes or GST—that those people are no better off. That is why people are saying: “Well, hang on, this economy is going so well, how come I am not feeling it?”. People are not feeling it, because it has been completely eroded by extra taxes and, as Mr Copeland has put out, what is technically called fiscal drag.

The money has been devalued by higher inflation. Sure, people are getting a bit more because of growth, but they are finding themselves in a higher and higher tax bracket and they are going backwards under this Government. They then discover that households have stood still, in net terms—in real terms—but the Government is taking an extra $3,000 off each household. So the entire gain has gone to Dr Michael Cullen. When it is suggested to him by the United Future party, the ACT party, New Zealand First, the National Party, and, I should say, the Green Party, because they believe in lower income tax—they say “Let’s get income taxes lower and put taxes on other things”; I think I am representing their position fairly—

💬 Hon David Carter: I didn’t know that.

The member has to stay awake. Let us just work this out. The National Party is for lower income tax. Am I correct that New Zealand First is for lower income tax?

💬 Craig McNair: Yes.

They say “Yes”. The Green Party is in favour of lower income tax, albeit with some extra taxes elsewhere. The ACT party is for lower taxes, full stop. United Future is for lower taxes, and, bugger me, Jim Anderton is for lower taxes on businesses. Let us just do the numbers. If all members in this Parliament voted according to what they believed in and what they expound publicly, we would have lower taxes.

💬 Rod Donald: 68 votes.

As Rod Donald says—he is much better at arithmetic than I am—that is 68 votes.

💬 Gordon Copeland: I think the Māori Party might be for lower taxes.

If we included the Māori Party, that would be 69 votes. Mr Copeland is getting excited. The only trouble is that he will stand up and vote for this bill, which keeps taxes exactly where they are.

💬 Gordon Copeland: I can explain why.

He is going to explain why. I can understand the Greens, because they say they are in favour of lower income taxes only if there are other taxes to make up the difference.

💬 Hon David Carter: They voted for the 39c tax rate. That doesn’t make sense.

Look, we have to admit that we have all made mistakes in this House, and the Greens made a big one. Here is the other astonishing fact in all of this. We have a Minister of Finance who thinks he has a magical touch, that he can spend all this money that the Government spends, better than the poor working people who earned it. He thinks that somehow when he spends $1 billion it has been to good effect compared with a worker spending $10.

He thinks that somehow this Government—and I ask members to picture it, with Parekura Horomia, Steve Maharey, Jim Anderton, and Trevor Mallard sitting around the Cabinet table and spending billions—can spend it to better effect than each working person just spending an extra $10 or $20 a week. We actually know how little the Government cares for working people. Helen Clark says her salary is just petty cash, because her comparison is with someone who earns $800,000, not with the average working person whom she is supposed to represent, to whom her salary is far more than petty cash. We also have a Minister of Finance, Dr Michael Cullen, who thinks that if we lower people’s tax it makes no difference. I have a message for Michael Cullen: it makes a huge difference. It makes a huge difference to the weekly pay packets of working people to keep more money. I am not surprised that there are 68 votes in this House, not counting the Māori Party, for lower income tax, because members can see the logic of it. The Greens can see logic in it too. They say that if we lower income tax, people will earn more and get more.

We have just had a flood of crocodile tears from the party that would give everything away, or sell everything off, in support of the failed National Party. I am proud to support this legislation and I am proud to be part of this Government.

On the one hand, I thank Mark Burton for such a brutally short speech, because it enables me to give mine now then do some more preparation for the next legislation, which we are just as concerned about as we are about these bills. On the other hand, I criticise the Government for not standing up and defending its own tax policies. I think it is extraordinary that the Government is actually doing some good things when it comes to income tax, with targeted tax policies that will start to take effect next April and will give some significant benefits to families, but its members are not actually prepared to get on their feet and promote those policies. Every party in this House is talking about tax cuts, except for the Government, yet, ironically, the Government is about to deliver the most significant tax cuts for quite some time, and, what is more, the cuts are targeted towards the people who need them most—poor families.

Our issue with those policies is that they are not being brought in quickly enough and the cuts are not large enough. We have made that clear during the debates on those tax policies. With the December Economic and Fiscal Update that came out yesterday showing an absolutely massive Government surplus—whichever way we look at that surplus, whether in paper terms or in cash terms—I think it is a major embarrassment for the Labour Government that it not only is waiting until April to deliver the first tax cuts for struggling families but also is going to keep people waiting for another year for the second tranche of those tax cuts. Meanwhile, kids in this country are growing up in poverty. I challenge Dr Cullen to bring the full package forward to 2005, instead of waiting until the out-years for those policies to take effect.

The second point I would like to make—it is not the reason why we are opposing this legislation, but I think the point needs to be made—is that annual taxation rates legislation should not be forced through under urgency. The original bill was 212 pages long. Not only was it 212 pages long; it was also amended during the Committee stage, but we do not have a bar 3 version of it in front of us for this third reading debate. I think that is bad parliamentary process for legislation that is not genuinely urgent. I criticise the Government for that.

On the other hand, I congratulate the Government on some of the features of this legislation. It is good to see, for example, the changes to provisional tax. It is good to see the sale and leaseback provisions on intangibles. It is good to see disputes resolution coming in. Those are all positive features. But our big sticking point with the legislation, and the reason why we are voting against it, is the changes to venture capital. We do not believe that foreign venture capitalists should get a tax advantage on their investments in New Zealand—an advantage that is not extended to New Zealand venture capitalists. I know that the excuse has been that we should have a regime equivalent to Australia’s, and that somehow we are short of venture capital. Well, Dr Cullen is actually the biggest venture capitalist in the country. He gambles $2 billion a year through his beloved New Zealand Superannuation Fund, and, in turn, the New Zealand Superannuation Fund puts over 60 percent of that on foreign share markets. So I say to Dr Cullen and his Government that if there is a shortage of venture capital in New Zealand—and there clearly is—then let us bring home the money that is going on foreign share markets and boosting other people’s economies so that they can compete more effectively against New Zealand, and let us see that money invested in New Zealand.

I hasten to add, in case some people think the Greens support the New Zealand Superannuation Fund taking a greater stake in the New Zealand share market, that we do not support that. We simply say that that money belongs to the Government because it is the people’s money, and that, on behalf of the people, the Government should be putting it into strategic infrastructure in New Zealand. We could give the Government a very long list of what that strategic infrastructure consists of, but let us start with double-tracking the North Island’s main trunk line and electrifying it. Let us put a solar water heater on every home in this country. Let us build some more wind farms. I could run through a whole raft of sustainable infrastructure that New Zealand will need in very short order.

But before I leave this part of the legislation, let us also look at the most important capital base that we need to be building, and that is our human capital. We say to the Government that it does not really have a massive surplus or a high net worth, because our young people are paying the price. Our young people are paying the price in having to borrow to fund their tertiary education. That tertiary education should be taxpayer funded, and that is the main investment the Government is ignoring. That is what the Government should be spending more of its surplus on—ensuring that our young people get a universal student allowance for their studies, and ensuring that student debt is progressively written off over a period of time for those young people who remain committed to New Zealand. That is one challenge we put to the Government.

The next challenge we put to the Government is to get on with introducing the carbon tax. I hear Dr Cullen talking about it more and more of late. That is a good thing; it means that it is not too far off. We also agree with the Government’s position that the carbon tax should be revenue neutral. In that context, I say to Mr Hide that that is why the Green Party does support tax cuts—we want to cut tax on personal incomes and on companies, because we want to encourage work and enterprise. But the balance point there—because we are fiscally responsible—is that we would bring in a suite of eco-taxes. Those eco-taxes are not only about collecting revenue but also, of course, about discouraging resource depletion, waste, and pollution. We are happy to talk with the Government any day about bringing those tax plans forward, because we believe that there needs to be a fundamental shift in the way we tax both companies that operate in New Zealand and individuals, so that we encourage work and enterprise and discourage waste, pollution, and resource depletion.

In relation to cutting tax, I say for Mr Carter’s benefit—because I think it was a figment of his imagination that we would cut the top tax rate—that we certainly would not cut the top rate; we would cut the bottom tax rate by making the first $5,000 of income tax-free. That would put $750 into the pocket of every worker and every beneficiary in this country. That is significantly different from what the so-called family-friendly party is offering. United Future claims that it is family-friendly, but the families who are most in need of a friend would get the cold shoulder from United Future, because its policy to lift tax thresholds would deliver only $75 a year to people earning less than $38,000. That is far less than they need, and far less than what the Government is already planning to deliver with its Working for Families package.

But people need more than that; they need some incentive to save for their retirement. That remains the big hole. I keep pestering the Government about the 6 percent differential that only we in this House get on our retirement savings. At least the Government has got rid of the penalties, but that 6 percent differential should be spread to everyone saving for his or her retirement. It might help to reverse the extraordinarily bad trend we see of fewer and fewer people saving for their retirement through registered superannuation funds. But I think it is time for the Government to go further than that and to look at shifting the “t’s” and the “e’s”. I hope the Minister is thoroughly investigating making contributions to registered superannuation funds tax-free—in other words, coming off gross income—and is looking at a grandparenting strategy, which would need to be phased in over a period of time, to make the payments taxable. That would give the Government the income when it most needs it, which is in 20 to 50 years’ time.

Meanwhile, the Government does need to sort out the issue that was raised in the Monetary Policy Statement that next year the Reserve Bank is projecting minus 11 percent household savings. That suggests to me that we have a bubble, and that bubble, if it does not burst, at the very best will deflate. When the property bubble does start to deflate, then I think this economy is in for a very rough ride. It is time for the Government to face up to that fact and shift the tax base in the right direction by looking at our eco-tax policies, by not getting rid of capital gains tax on superannuation funds, but instead looking at implementing a capital gains tax right across the board. It will need that revenue in the years to come to address the structural problems with our economy—problems that the National Party is not even prepared to acknowledge.

I hope Mr Key has read page 30 of the December Economic and Fiscal Update, because it at least acknowledges that the equilibrium price of petrol will be $35. I think it will be higher than that, but it will certainly be a lot higher than the $19 that the Minister said it would be, back on 27 May when his Budget came out. Let us face some reality about petrol: petrol will only increase in price, the demand is only growing, and the reserves will only become more scarce. Until this Labour Government faces up to that fact, and until National acknowledges that the problem even exists, we are in for a rough ride.

There will be no Christmas bonus for the taxpayers of New Zealand. There will be no good news for the taxpayers of this country, and it did not need to be that way. I brought to this House a perfectly reasonable Supplementary Order Paper that would have put in place some good news for New Zealand taxpayers, and would have delivered additional money into the hands of every taxpayer in the country who earns more than $9,500 a year, which is the vast majority of them, as from 1 April next year. As others have mentioned, that Supplementary Order Paper 284 was vetoed by the Government, but I would like to put on the record exactly what that Supplementary Order Paper would have done and what it intended to do. It would have shifted the tax brackets from 1 April 2005. The 15c in the dollar rate would have moved from $9,500 to $10,750; the 19.5c rate from $38,000 to $43,000; the 33c rate from $60,000 to $68,000; and the 39c rate from income over $60,000 to income over $68,000.

So why was the United Future Supplementary Order Paper to make that change vetoed by the Government? I would like to record tonight how the voting on that Supplementary Order Paper would have gone if the Government had had the courage to put it to the vote. It would have looked like this. Those in favour: National, with 27 votes, New Zealand First, with 13 votes, ACT, with 9 votes, and United Future, with 8 votes—a total of 57 votes. Those parties would have voted in favour. But the other parties in the House would have voted against it: Labour, with 52 votes, Progressive, with 2 votes, and the Greens, with 9 votes—a total of 63 votes. So, unfortunately, my Supplementary Order Paper was destined not to be approved by Parliament in any event. Let me make it clear; I will explain it to members so that they do not have to figure it out. The reason that my Supplementary Order Paper cannot become the law of New Zealand is the Green Party. If members look at the figures I have just given, they will see that I am right.

I asked the Green Party members why they were not voting for my Supplementary Order Paper, and this was their response. They said to me: “We’re not going to vote for your Supplementary Order Paper, because we are quite happy to see inflation affect the tax brackets, and to see the Government’s revenue coffers bring in more money, so that we can redistribute more money and spend more money.” At least, the Green Party has the courage to come out and say upfront that that is its policy and its position. Dr Michael Cullen, on the other hand, has never said that. He has never come into the House and said: “My party’s policy is to collect as much tax as we can, so that we can distribute as much money as we can and spend as much money as we can.” However, I want to say to Dr Michael Cullen tonight that, even though he has not said the words, at the end of the day actions speak louder than words, and New Zealanders fully understand that that is the ideology that drives this Government.

I wanted to mention the reality that my Supplementary Order Paper would not have succeeded because the Greens were against it, because of the false claims that have been made in this Chamber tonight by ACT, New Zealand First, and National that United Future should renege on its deal with the Government, and that that, somehow, would reduce taxes. Well, it would not, and I will explain why. If United Future broke its word and walked away from its support role on taxes and the Budget, that role would be immediately assumed by the Green Party. Would that be good for New Zealand? No, it would not. The shallow National, ACT, and New Zealand First analysis overlooks that reality, and a very grim reality it would be. Imagine if the Greens in this Parliament were in the position of United Future and supporting this Government! That would be grim for business, grim for international traders, grim for road users, and grim for families. Quite frankly, it would be thoroughly bad—bad for New Zealand.

The New Zealand economy has been booming in the last several years. The Government is collecting tax like never before. In the last 3 years alone, the Government has collected $4.5 billion over and above its own annual Budget estimates. In yesterday’s Budget Policy Statement there is a table that shows that over the next 4 years the Government will collect another $5.7 billion over and above the estimate in this year’s Budget, which was announced in May. I say to the Green Party and to Rod Donald that that is after it has paid for the Working for Families package, which we supported. Over a 7-year period, that is a total of $10.2 billion over and above the Government’s own estimates. Yet still, according to Dr Cullen, there is no room for tax cuts.

Well, yesterday in this House the Prime Minister, in commenting on Judy Bailey’s salary increase, said that TVNZ had “a culture of extravagance”, but I tell the House tonight that TVNZ is a babe in the woods compared with this Government. Here is this Government with an extra $10.2 billion coming into the coffers, and what does it intend to do with it? It intends basically to blow the lot on extravagant extra expenditure on God only knows what. We will have to wait to find out. United Future members will certainly not be going along with that, but—as I have explained before—it will happen because of the presence of the Greens in this Parliament and the reality that those members’ votes will carry the day.

So what has Dr Michael Cullen said he will do with that extra $5.7 billion over the next 4 years? Well, I will tell members. Yesterday he said that he planned to bank some of the windfall and to direct the rest of it into new spending initiatives. That is quite unacceptable in the circumstances. He continues to tell the country that there is no room for tax cuts. Well, I am sorry but I do not buy it. Our economy might be booming, the Government might have repaid debt, and the Government might have a fabulous balance sheet at the moment, but it is a very different reality for New Zealand families. New Zealand families, in fact, are feeling the pinch. Household borrowings are at an all-time high, and New Zealanders are basically living at the moment by drawing down on their own capital base. The Finance and Expenditure Committee, which considered this legislation, has talked to Dr Alan Bollard for the past 2 years about this. Every year New Zealanders are spending more than they earn, and every year they are going deeper into debt. Currently, New Zealanders are spending 11 percent more each year than they are actually earning. We see the result in massive credit card debt and massive additional mortgages.

Dr Cullen seems to be unable to see what is plain to the rest of us. He is busy hoarding our money—money that belongs to taxpayers—in the bank, while people are being forced to borrow to stay alive, to keep body and soul together. New Zealanders should assess these realities carefully in deciding how they vote next year. Would they like to be able to keep more of their earnings through tax cuts and begin to pay down their debts, or are they content to allow Dr Cullen to increase their taxes so that he can bank and spend?

Let me say that United Future would adopt a completely different approach. It would include tax reductions by income splitting for couples, adjusting the tax brackets for inflation, and reducing the corporate tax rate, coupled with reining in the Government’s extravagant spending habits. That would be good for families, that would be fair, and that would be just. It is thoroughly reasonable, the case is compelling, and I continue to express the hope—even at this late date—that the Government will act to give Kiwis a tax cut as part of next year’s Budget. I very much doubt, though, whether those hopes of mine will be fulfilled. I suspect I will be hoping in vain, I am sad to say.

It gives me a huge amount of pleasure to contribute to this debate on this taxation legislation, which was introduced to the House, I think, at the end of March of this year. The contributions from the members of the Finance and Expenditure Committee, of which I used to be a member, have been very interesting. They obviously put a lot of time, energy, and effort into consideration of this legislation. Considering tax bills is always a hard job because they are very detailed. The devil, as we know, is always in the detail. So I commend the members of the select committee who have contributed to the debate this afternoon for the work that they have obviously put into this legislation.

The legislation is a major reflection of several important, significant themes of our Government’s tax policy work programme: firstly, measures to promote growth and innovation, which is a fundamental platform of the Labour-Progressive Government; simplification of the tax system, particularly for small businesses, to ensure that their compliance costs continue to be reduced; and, obviously, something that is a core responsibility of any Government, and that is protection of the revenue base. It also, as an added side benefit, will help New Zealand to compete more effectively with Australia for venture capital. It aligns our venture capital tax rules more closely with those of Australia, and it assists in promoting venture capital investment in our country by non-residents. Those are significant contributors to supporting continued economic growth, better employment figures, and lower unemployment figures.

While I am on that subject, it is an absolute delight to every member of this Government, and, hopefully, even to members of the Opposition, to record that we now have the lowest unemployment rate in New Zealand for nearly two decades. One of the biggest pressures facing employers in the country is an inability to attract staff, because of the low number of unemployed that we have. Obviously, our focus in the future will be on offering even more improved support to people who are currently in part-time work or are unemployed, and who would be able to make a more significant contribution to our economy if they were in the paid workforce.

The legislation also introduces a rebate of income tax for small-business taxpayers who pay tax on their self-employed or partnership income during their first year. Self-employed people have been calling for this measure for a long time, and it is really great to see it introduced at this time.

The legislation amends the framework governing the resolution of disputes between taxpayers and the Inland Revenue Department, to improve the process for both parties. Again, that will be a significant contributor to reducing compliance costs for taxpayers. Having that legislative process available will be of great assistance for them.

Finally, it sets the income tax rates that will apply for 2004-05. It is fantastic legislation and it is my pleasure to support its further progress.

I guess the only excuse one can give the Hon Ruth Dyson for saying that the venture capital provision in this legislation will make New Zealand more compatible or competitive compared with Australia is that she is not even remotely connected to the revenue portfolio—and New Zealanders should be grateful for that. This venture capital provision does nothing to make New Zealand competitive compared with Australia. At least, Australia is further down the track with provision of a limited partnership mechanism that would enable it to work.

But I want the United Future Party members to reflect on what message they are delivering to the public. United Future Party members are denying hard-working New Zealanders a well-earned tax cut. That is what New Zealanders would get if United Future members stuck to their principles and opposed this legislation. They say they cannot do that because they are worried that Labour will start to favour the Greens over United Future. Hard-working New Zealanders will suffer because United Future wants to be in the good books of the Labour Government.

As for Gordon Copeland’s logic, I think he has not quite worked it out. He said that his Supplementary Order Paper was not put to the vote because the Labour Government was worried about the Greens. But we have just done a numbers check, and if the Green Party supported the Government, then I am sure the Hon Dr Michael Cullen would have been very comfortable and happy to accept Gordon Copeland’s Supplementary Order Paper amendments that proposed a taxation threshold adjustment to benefit hard-working New Zealanders. Today, in about 15 minutes’ time, a vote will be taken, and I think United Future members will have to take responsibility for denying hard-working New Zealanders a well-deserved tax cut.

After that, United Future went on to say—

💬 Gordon Copeland: We support tax cuts, for crying out loud.

Oh, United Future supports tax cuts, but it would not support that move by voting against this legislation, which supports high tax rates. I am so glad to hear that United Future member yelling out to the public that his party supports tax cuts. Well, it is simple to demonstrate that. In 15 minutes’ time we shall all watch the way that United Future members cast their votes.

💬 Hon David Carter: It must be tough being a doormat!

I presume, day in and day out, United Future members are just waiting for somebody to walk all over them.

The Hon Dr Michael Cullen must be smiling in his dreams. He has been successful. His spin is that he is a fiscally responsible Minister, that he is very tight in his spending, and that he somehow is very responsible. It works very well on only the Labour MPs. After we had pointed out that the Labour Government is rolling in a surplus of $6.7 billion, and is raking in $34 billion from tax, Lynne Pillay said: “That’s what makes a good Government.”—taxing people in order to be rolling in a surplus. Then the Hon David Cunliffe told us that this legislation was no big deal, that it was only a mechanism to enable more money to roll in for this tax-and-spend Labour Government. The Hon Dr Michael Cullen has obviously been very successful in conning his own caucus colleagues.

The other thing I wanted to point out about the Green Party is that Rod Donald complained that the Labour Government’s Working for Families package was not being promoted. I do not know where he has been. Can members guess how many millions of dollars in the Budget will be spent on promoting the Working for Families package?

💬 Hon David Carter: $21 million.

My colleague got it in one go. I also want to share with the public that I found out that the Inland Revenue Department has $8 million in its budget for promotion. When I asked the department how it would spend that money, it said that it did not have much idea of how to spend it, that it did not know where to target the money—whether on print media, radio, or whatever. It did not have a clue. The Inland Revenue Department was just handed $8 million. That is the department that tells people not to worry and that it is there to look after taxpayers. The department has $8 million that it does not know how to spend. I am sure the advertising consultancies will be queuing up in front of it to get their hands on that money.

National is totally opposed to this legislation, not only because it confirms the high tax rates, which are not fair, but because the Hon Dr Michael Cullen continues to refuse to tell the public when will be the right time to cut tax rates. He raised expectations by saying that he would not rule out a tax cut when the timing was right. He continues to say that the economy is doing well—despite, may I remind the public, this Labour Government—yet it still is not the right time. When will Labour ever find that the time is right to reduce tax rates for hard-working New Zealanders?

We are also against the legislation because Labour has brought in a lot of provisions that fall into the category of feel-good provisions but have no substance. Once again, we would like to point out that the venture capital mechanism is nothing but words on paper. Submitter after submitter said to the select committee that it would not work until work had been done on allowing a limited partnership mechanism, and that the New Zealand Parliament needed to recognise that further amendments needed to be brought in to allow investors from countries other than those on the “grey list” to have the same advantage in terms of the distribution of capital profit not being taxable.

The third part is to do with closing loopholes such as the Australian unit trusts. I pointed out in the Committee stage that getting Inland Revenue Department officials to go on a witch-hunt to close loopholes was a waste of time, when the problem was glaring us in the face. When the Labour Government continues to hold up high tax rates, investors and tax consultants will continue to look for mechanisms, for loopholes, to gain an advantage for themselves or their clients. If the Labour Government simply did the sensible thing and brought down both personal and company tax rates, it would find that Government departments such as the Inland Revenue Department and Treasury could spend time on more constructive areas, and could really reflect the statements that continue to be made by Labour about it encouraging growth and enterprise.

Hearing National Party members talk about hard-working New Zealand families sort of sends a shiver down one’s spine. It is a little bit like hearing the Grinch talk about Christmas, especially as those members are from a party whose leader, within hours of being elected leader of the National Party, announced on television that his personal commitment was to reduce the tax burden on high-income New Zealanders. This is another excellent piece of legislation from this Government. It is targeted at reducing compliance costs for business in New Zealand, and at making business easier for those people, who are keeping our economy ticking over. I am very happy to support it.

One of the rich ironies of the debate this afternoon is that the Opposition right-wing parties of National and ACT have been going on for years and years about how they are the party that is friendly towards business. This bill is very business friendly and very helpful towards business in a wide range of ways. I am very pleased to support this bill. This Government is very supportive of large, small, and medium-sized businesses. This is a good bill that will help them.